The earnings from META sparked a rally in stocks as they added to what MSFT and CMG started. The mega-caps saved the day… at least that seemed to be the theme. The breadth of the move was more positive as all eleven sectors closed higher on the day. The worry factor was gone at least until around 4:30 pm when AMZN reported earnings and the AWS portion of the data showed a slowdown and that didn’t help the stock after hours. We will see how that plays into the move on Friday. Thus the NASDAQ was higher along with the S&P 500 index as both bounced back from the recent struggles. The volume was above average with plenty of give and take. The economic data showed the advance Q1 GDP up 1.1% versus 2% expected versus 2.6% for the 4th quarter. PCE was up 4% overall showing pressure for inflating prices. That will give the Fed cause to push rates high at the next FOMC meeting. The data was mostly ignored by investors, but I am sure that information will sink in eventually. Pending home sales fell 5.2% in March… not pretty as if fell 23.3% year over year. Semiconductors were better by 0.4% and they are still lagging. Still no real leadership from the sector. Plenty of hype over META earnings on the day, but the challenge is how things play out going forward. The belief would be at some point the markets/investors will have to accept the bad news for what it is… reality. We are an optimistic society when it comes to stocks.
Earnings are the storyline for the week as the mega caps have been the catalyst both up and down. META, MSFT, CMG, and GOOG showed positive results. AMZN beat earnings on Thursday night… but the devil in the details wasn’t well received and we will see how that plays out on Friday. The market is awaiting the next catalyst and with earnings, the higher rates at the FOMC meeting, and banks losing liquidity again, there will be plenty provided and it could expand the volatility. The S&P 500 index closed up 2% as buyers ruled the day. The NASDAQ was up 2.4% with SOXX up just 0.4%. Small Caps (Russell 2000) were up 1.3% bouncing off the lows. The ten-year treasury yield closed at 3.52% up 9 bps bouncing back near last week’s levels. Crude (USO) was up 0.7%… economic strain putting pressure on prices. Gasoline (UGA) was down 0.3%. Natural gas (UNG) was up 1.8% as volatility remains. The dollar was up 0.04% and struggling globally. We are focused on managing the risk and watching how this all unfolds.
NEWS: AMZN beats after-hours… details about AWS didn’t settle well watching how it impacts Friday.
ONE Chart to Watch: QQQ – 1) Broke the three-week sideways range and broke support at $312.78 Tuesday. Bounced back on Thursday. Indecision at its best. 2) Short-term trend is UP… starting from the January low. 3) $320 resistance and level to clear for upside trade opportunity. (TQQQ) 4) $312.78 support and level to hold… if it breaks it creates a downside trading opportunity. (SQQQ)… didn’t follow through on Wednesday… reversed on Thursday. 5) Indecision on the direction, too choppy to go swimming, watching patiently.
Additional Charts to Watch: SPY, IWM, SOXX. after breaking lower they bounced… some more than others, but bounce they did… Friday will be of interest relative to the current trend.
Previous Charts of Interest – Still in Play: AAPL (reversal confirmed). Added to the position. AMZN (bottom reversal) Added. PG – trading range break as part of the consumer staples money rotation. Earnings gapped higher. Added. MCD breakout. Added. WMT ‘V’ bottom breakout. Added. WES reversal. Added. SRS Added. SRS (buy the dip). Added. SOXS. Added. TSLS. Added.
Stops Hit: None
Quote of the Day: “Marriage is neither heaven nor hell, it is simply purgatory.” – Abraham Lincoln
The S&P 500 index closed up 79 points to 4134 the index was up 1.96% with above-average volume on the day. The index broke below 4086 support and bounced back on a strong showing Thursday. The bounce puts the index back in purgatory. Eleven of the eleven sectors closed higher on the day with telecom as the leader up 3.9%. The worst performer of the day was energy up 0.3%. The VIX index closed at 17 as anxiety fell and hope sprang eternal on the day. Plenty to watch moving forward.
Sector Rotation and the S&P 500 Index:
XLB – Basic Materials hit resistance at $81.75 and tested lower holding at the 50-day MA. Some rotation is in play short term. The sector was down 0.2% for the week. Broke lower negating the uptrend off the March lows. Bounced Thursday with the broad markets.
XLU – Utilities Flag pattern hitting resistance at the 200-day MA. The sector was up 1% for the week. Entry $68. Sold off on Wednesday testing support at $67.95. Bounced at support.
IYZ – Telecom gapped down to $21.63 support watching and short signal if it breaks support. The sector was down 3.7% for the week. Back above the $21.63 support, still in a downtrend.
XLP – Consumer Staples upside trend continues as money rotates to the “safe” haven of defensive stocks. The sector was up 1.8% for the week. Topped? Watching how it unfolds. Solid bounce on Thursday.
XLI – Industrials bounced back to the previous highs. The sector was up 0.8% for the week. Broke lower and breaking from the triangle pattern. Short side setup. Bounced on Thursday.
XLV – Healthcare Made a move through two resistance points. $136.30 next resistance to get through. Topping pattern on the chart. Biotech (IBB) equally moved higher. Entry $127.57. The sector was down 0.2% for the week. Testing. Broke from the trading range and tested $131.40 support. Modest bounce on Thursday.
XLE – Energy rolling top with resistance at the $86.85 level. The sector was down 2.6% for the week. Crude moving lower impacting stocks short term. Heading towards the $82.74 support.
XLK – Technology The sector cleared the $144.10 resistance and testing. The sector was down 0.6% for the week. Need some leadership from the sector. Traded to $144 support, SOXX leading the downside… earning impact from MSFT & GOOG helped on Wednesday… META rallied the sector on Thursday… AMZN after-hours in play for Friday.
XLF – Financials breaks above resistance at the $32.36 level on better-than-expected earnings. Showing short-term leadership. The sector was up 1% for the week. Banks will be the key short-term as they continue to struggle with regional banks reporting weaker earnings. Watching banks with deposit worries back in the headlines pushing the sector lower breaking $32.36 support. Bounce on Thursday and watching the outcome.
XLY – Consumer Discretionary $147.11 resistance in play again. Retail sales didn’t help as they fell into negative territory. The sector was up 0.3% for the week. Down 2% on Tuesday… added to downside on Wednesday. Bounced back on Thursday… watching.
IYR – REITs stalled from the bounce and moved sideways over the last three weeks. Need to clear $85 currently. The sector was up 1.6% for the week. The negative influence of interest rates and reports of vacancies in commercial rents are rising. Letting this unfold. SRS entry $17.75. FCR is the largest holder of commercial real estate loans. Broke lower from the range at $83. Bounced back on Thursday and letting it unfold.
Summary: The index broke support on Tuesday and the downside move followed through on Wednesday. META earnings pushed the index back above support and offered some optimism to investors. Watching AMZN impact on Friday following mixed results. Economic data remains a driver along with earnings. The 4086 level broke on the downside Wednesday but bounced back on Thursday. Volume has been above average this week with some back-and-forth in direction. Plenty of things to worry about on the horizon… crude is a concern longer term… treasury bond yields bounce on Fed concerns… leadership… geopolitics… dollar… earnings… debt ceiling… and plenty more data on the way. We will remain patient for now as data versus hope play out. Remember two things; first, the trend is your friend, and second, don’t fight the Fed.
(The notes above are posted at the end of each week based on activity from the previous week’s trading. The BOLD/ITALIC comments are the current-day changes worthy of note.)
KEY INDICATORS/SECTORS & LEADERS TO WATCH:
The NASDAQ index closed up 287 points to 12,142 as the index was up 2.43% for the day. The index held the move above the 11,474 previous support. The bounce was positive for the day… still watching the overall direction as one stock does not make a market. Technology is the key… up on earnings the last two days but SOXX still lagging.
NASDAQ 100 (QQQ) was up 2.72% with the mega caps earnings leading the move. The bounce pushed the secotr back above the $312.13 support and watching how Friday unfolds. The sector had a positive bias with 84 of the 100 stocks closing in positive territory for the day. Mega caps are in play with earnings out. Watching how AMZN impact things on Friday
Semiconductors (SOXX) failed to hold the move above the $432.27 resistance. Not looking good on the charts with the test lower. The sector was down 1.5% for the week. Watching how it plays out next week. Closed below the 50-day MA… confirmed the downside break Tuesday. Tested support Wednesday and bounced very modestly on Thursday… not leading.
Software (IGV) worked higher and now consolidating around the 10-day MA. The sector was down 0.1% for the week. Mega caps leading the sector. Confirmed the break of the up-trend line – more downside? Bounced on Thursday and looking to Friday for more direction.
Biotech (IBB) The sector moved higher hitting resistance at the $134 level. The sector was up 0.8% for the week. IBB entry $127.35. Stop $130.50 (Hit Stop). Negative reversal on Tuesday… watching how it unfolds. Wednesday move to support at $128.35… Thursday held no real upside however.
Small-Cap Index (IWM) lagging overall as investors move away from growth to safety. Bottom trading range in play. The sector was up 0.6% for the week. Letting it unfold. Broke lower and remains in the bottoming pattern… testing March lows as support.
Transports (IYT) attempting to push higher as airlines are a drag overall on the sector. The sector was up 1.4% for the week. If the markets are to move higher overall they need transport to be positive. UPS earnings tank the sector down 4.2% erasing the upside moves on Tuesday. Rails, trucking, and airlines all moved lower testing the January lows… a short side set up despite the bounce on Thursday.
The Dollar (UUP) The dollar remains volatile as more countries are willing to trade outside the dollar. held steady for the week… watching how it unfolds. The dollar was down 0.1% for the week. Moving lower and not looking good.
Treasury Yield 10-Year Bond (TNX) The yield closed the week at 3.57 up from 3.52% last week. Mixed reactions all week to the news. TLT was down 0.6% for the week. TLT up 1% Monday. Up 1.5% Tuesday… bond rally on worries? Held on Wednesday but a flight to safety remains in play. Thursday yields rose on belief the Fed will hike based on PCE in the GDP data.
Crude oil (USO) Tough week for oil as news states China and US are consuming less on weaker economic data. The pressure will be on the upside longer term… watching how the short term unfolds and what opportunities are offered. USO was down 5.3% for the week. UCO entry $25.80. Stop $28.50 Hit Stop. Up on “improving” economic data in China Monday… Down on US worries Tuesday? Further decline on Wednesday as US economic picture shows more slowing. Small bounce on Thursday. Watching for some clarity.
Gold (GLD) The commodity is showing a rolling top. The metal was down 1.1% for the week. Entry $169.50. Stop $$184.50. Hit Stop. Solid gain, watching for the opportunity as it unfolds.
Put/Call ratio was 1.01 on Thursday… back to neutral.
Questions to Ponder: Navigating Uncertainty
Stagflation – persistent inflation combined with stagnant consumer demand and relatively high unemployment. Do we have this situation currently in the US economy? If it doesn’t exist in a purely technically defined way, it is creating the same economic environment currently in the US, and the current administration is in denial. Thus, we will continue to feel the effects of this until we change course.
Money Supply – Falling at the fastest rate since 1930. M2 fell 2.2% in February and fell 2.4% in March… Contraction in supply should contract liquidity in the system and stifle inflation. Watch bank deposits they are still declining. See the above definition of stagflation… the pressure on the economy is building.
Semiconductors – China announced a national security review into US chipmaker – and one of three memory chip market leaders – Micron. MU fell on the news. This battle between the US and China over chips has been going on for some time… caught in the crossfire are South Korea and Taiwan.
Thursday: Stocks bounced back on earnings from META… Watching how it responds to some disappointment from AMZN after hours on Thursday. The positive reaction on Thursday was due to what some deem a resilient economic picture. Not sure what numbers they are looking at but the data is pointing to stagflation not growth. There is still plenty ahead for investors to ponder relative to the economy, earnings, the Fed, debt ceiling, and inflation. But for 24 hours they are reveling in the earning data. All eleven sectors closed higher on the day with above-average volume, but the breadth of the move is still concerning if you look deeper. We see opportunities setting up both on the downside and the upside on the charts. The key is to let it unfold and take the opportunities as they are presented. No confirmation on either side as the market continues its lateral move. Challenging environment as hope wrestles with reality. I am looking at the bounce as an opportunity for short-side setups… not expecting the rebound to last.
We are watching the trends in the leading sectors and the major indexes as they bounced back on Thursday. The SOXX is a key indicator for the markets and after peaking three weeks ago and moved lower. The sector tested below key support levels and looking at how it plays out near term. Watch for the major index’s volume, direction, sentiment, and volatility levels to lead you to what takes place. There are plenty of moving parts, we have to understand that truth/reality eventually plays out in the markets. Until then we will continue to take what is offered and manage the risk that is.
Our longer-term view is still negative, but nothing goes straight down or up… there are always positive and negative swings in a longer-term trend. We have to remain focused on short-term trades until there is longer-term directional clarity. News is in the driver’s seat as we take positions that are technically moving and offering opportunities. The key remains, know where you are now, know what is happening now, and know what is on the horizon… act accordingly. The goal now is to manage the risk of positions, take what is offered… short or long, and then manage your money.
“Vision without action is a daydream… Action without vision is a nightmare.” Japanese proverb
The goal of these notes is to allow you, the investor, to learn how to see the market development as the progression through the sector develops based on news, speculation, and data. Data drives long-term results and develops trends… speculation and news are short-term drivers and offer higher risk trading opportunities. Through the use of both technical and fundamental data, we can have greater confidence in our trading strategies with a disciplined approach to investing and managing the risk of our money.